question regards VAT

Chris_P_2

My wife works part time as a speech therapist. Recnetly she bought some trainigCDs from a company for the benefit of one of her clients' school. 9The school had lost the previous CDs and so had to buy rrplacements. The company only sell to regiustered therapists, and so my wife paid for them, gave them to the scheool and invoiced them). My wife only earns circs £4000pa from thi, and has never dealt with VAT issues.

Trying to be helpful, she basically copied the invoice that she had received for her purchase (showing abreakdown inc and ex VAT).

The school are trying to say they dont pay VAT and so should only pay £435 as opposed to £523. But theres no way my wife is going to lose the £87.

What do we need to explain to them in order to get the full payment?

ps: they also want to have detaisl of the original seller - but surely this is irrelevant.

Thanks

chrismac1

Cancel the invoice you have raised on them. Invoice them for 523 net, 0 VAT and 523 gross which is what a non-VAT registered business should raise an invoice for.

If they don't like that insist they return all the CDs in mint condition.

JasonLVC

I cannot understand why the school "doesn't pay VAT", there are no exemptions for schools buying educational CD's.

If it is a state (Local Authority) school, they can reclaim all their VAT via the LA. If they are a fee paying school, they will not be VAT registered and they will not recover any VAT charged to them, but they will incur VAT on almost everything they buy (one reason why private education is expensive).

If it is a charity based school, it still has to pay VAT on educational materials. End of.

Do what Chrismac1 has recommended and issue an invoice with Nil VAT and just the total price paid. Thjis is the correct thing to do anyway as wife isn;t VAT registered so she shouldn;t be showing VAT on her invoices, just whatever the cost was to her being passed onto the school.

I assume they want details of the original seller to make sure wife isn;t adding on a profit, no harm in giving a copy to the school but I'd resist as the school sounds untrustworthy and may snitch to the supplier which may mean the supplier may stop selling to your wife if the supplier thinks she's got a side line on reselling CD's.

ps. What a miserable bunch the school seems to be, trying to do a favour and just get hassle.

John_Pierpoint

It is the rules innit.

A few weeks back we had someone protesting they had bee charged VAT on a training course. It seemed to me that the definition of VAT free (presumably really "zero rated"?) was very variable.

Is there some logic to which "traders" are zero rated - for example a Local Authority school is considered as worthy as a subsidised farmer?

How about (say) Brasenose Oxbridge college versus Buckingham, private enterprise, University v Birmingham Uni ?

thenudeone

Someone who isn't registered for VAT must not issue an invoice which shows VAT separately as an addition to the goods value.

It's a criminal offence and sometimes used by dishonest tradesmen to get an instant 20% uplift in price. The taxpayer loses out because the company paying the invoice usually reclaims the VAT from HMRC but the trader has never paid the VAT to HMRC.

I know this wasn't the intention but if she's invoicing someone else, she should just charge the cash she's paid and don't mention VAT.

System

John_Pierpoint wrote: »

Is there some logic to which "traders" are zero rated - for example a Local Authority school is considered as worthy as a subsidised farmer?

It's got nothing to do with worthiness.
All traders, and anyone else making VATable supplies, has to register for VAT if their turnover exceeds a certain amount (c £60,000, from memory)
They can register voluntarily if their turnover is less than this amount.

Everyone pays VAT on VATable things they buy, and VAT-registered organisations can reclaim the VAT by offsetting it against the VAT they collect from their own customers.

An organisation that buys lots of VATable items but sells very little can get a net refund, but only if the supply they are making is actually VATable. Education is exempt (not the same as zero-rated) .

JasonLVC

Clifford_Pope wrote: »

It's got nothing to do with worthiness.
All traders, and anyone else making VATable supplies, has to register for VAT if their turnover exceeds a certain amount (c £60,000, from memory)
They can register voluntarily if their turnover is less than this amount.

Everyone pays VAT on VATable things they buy, and VAT-registered organisations can reclaim the VAT by offsetting it against the VAT they collect from their own customers.

An organisation that buys lots of VATable items but sells very little can get a net refund, but only if the supply they are making is actually VATable. Education is exempt (not the same as zero-rated) .

Current threshold is £77,000

Education is indeed exempt but Local Authorities (which includes state schools and Academies) have the benefit of s.33 of the VAT act that allows them to reclaim any VAT they incur on their non-business activities (non-business being service provided by statute) so the LA effectveiyl can reclaim VAT whereas a charity that is funded by donations/grants cannot reclaim any VAT at all.

Oddly, education when provided by a sole trader or Partnership is always exempt, but when provided by a Ltd Company is always standard rated. This is becuase the education exemption refers to the delivery of education in a personal capacity. A sole trader/Partnership does this, whereas a Ltd Co sees an employee delivering the training so the subtle legal difference changes the VAT treatment of the education.

Education provided by a charity or other eligible body is always exempt which restricts VAT recovery considerably hence one reason why fee paying schools are so expensive.

John_Pierpoint

So we have "training Companies" charging VAT on their courses.
We have piano teachers (?), who are sole traders, being exempt but unable to reclaim input VAT.
Similarly we have Eton College, a charity, which is only exempt.
Meanwhile "Bashstreet Bog Standard Comprehensive" being effectively zero rated (for it "Approved School" type "education") and so subsidised via the tax system because it was created by statute?

How about these "Academy" Private Finance Initiative type schools being created at the moment? Where do they shade into being charities.

JasonLVC

John_Pierpoint wrote: »

So we have "training Companies" charging VAT on their courses.
We have piano teachers (?), who are sole traders, being exempt but unable to reclaim input VAT.
Similarly we have Eton College, a charity, which is only exempt.
Meanwhile "Bashstreet Bog Standard Comprehensive" being effectively zero rated (for it "Approved School" type "education") and so subsidised via the tax system because it was created by statute?

How about these "Academy" Private Finance Initiative type schools being created at the moment? Where do they shade into being charities.

Up until last year, Academies were given additional grant funding on top of their normal per pupil amount to reflect the VAT they cannot reclaim. It put a lot of schools off from converting to Academy.

The current government changed the law and allows Academies to be treated the same as a state school, so an Academy can reclaim VAT on all its purchases, just like the local authroity run comprehensive down the road can.

Academies are not usually charities (although they can be/some are), they are usually Ltd by Guarantee companies so for VAT can avail themselves of the same exemptions as charities (which aren't many in reality), mostly in relation to building new classrooms/teaching blocks which are zero rated for relevant charitables (ie, non-business) use which Academies fall under.

JasonLVC

This education thing catches a lot of private providers out. Say you start off as a piano teacher, sole trader and you are busy enough to turnover £100k a year but no need to VAT register as your sales are all exempt.

The Accountant comes along and advises the teacher if they incorporate they can reduce their tax outgoings by receiving a dividend plus protected from any debts or liability as well. teacher incorporates. Teachers turnover is now VAtable, they don't realise this and 2yrs down the line get a call from HMRc asking why they've not paid VAT on their sales. Ouch!